Maintaining Trade Secrets in Rhode Island

MAINTAINING TRADE SECRETS FOR BUSINESS INVENTIONS

Daniel Jon Holmander, Esq.Barlow, Josephs & Holmes, Ltd.

©2012 Barlow, Josephs & Holmes, Ltd.

[email protected]

Comparison of Different Types of Intellectual Protection • IP Law is important because it has been estimated that

45-80% of a company’s value lies in its intangible assets, namely intellectual property rights

• The purpose of this course is discuss the following:• 1. patent law – public disclosure• 2. trademark law – “use in commerce”• 3. copyright law - publication• 4. trade secret law – once public, protection is lost forever

©2012 Barlow, Josephs & Holmes Ltd.

Types of Intellectual Property Rights1. Copyrights – protects original works of authorship fixed in a tangible medium of expression. 2. Trademarks - indicia affixed to goods or used in

connection with the sale or advertising of services to identify the source of the goods or services

3. Patents- government grant of the right to exclude others from making, using, selling or importing the patented invention. (note, not right to use the invention)

4. Trade Secret – information not generally known to the public that confers some economic benefit to its holder and is the subject of reasonable efforts to maintain its secrecy.


Patents - Overview• What is capable of being patented?

• Any novel and non-obvious invention• In the US this includes business methods

• Rights Awarded• Government grant of the right to exclude others from making,

using, selling or importing the patented invention.

Types of Patents in the U.S.

• Utility Patents• Provisional Applications• Non-Provisional Applications

• Design Patents• Plant Patents


Patentable Subject Matter

• A. Apparatus/Device or Article of Manufacture• B. Composition of Matter• C. Method of Manufacture• D. Method or Process for Using

Apparatus/Device/Article• E. Business Method Patents• F. Software – must be tied to a physical structure


Not Patentable Subject Matter

• A. mathematical formulae• B. algorithms• C. mental processes• D. music• E. basic mathematical and physical relationships• F. phenomena of nature• G. abstract intellectual concepts


Benefits of Patents

• 1. increase valuation of company

• 2. support higher profit margins by offering exclusive features

• 3. source of income through a licensing program

• 4. defensive measure if accused of violating a patent of competitor

Federal Trademark Law• Trademarks are indicia affixed to goods or used in

connection with the sale or advertising of services to identify the source of the goods or services

• Many forms• word mark• slogan• logo• musical notes• trade dress• scents


Trademark Rights

• Common Law Trademark Rights TM

• Trademark Rights arise out of usage• Rights accrue in geographic territory

• Federal Registration ®• Nationwide protection• Significant advantages

• Presumption of validity at trial• Incontestability 5-6 years after registration

• Sample Federal Registration

RI State Trademark• Contents – similar to Federal Registration except no

intent-to-use application; must have use • See http://sos.ri.gov/business/trademark/forms/

• Limited Prosecution Phase – granted or refund• Less Expensive Filing - $50 • Protection – extends to the boundaries of the state of

Rhode Island only(also available in MA, CT, etc.)• No connection between Secretary of State

incorporation and RI State Trademark


Benefits of Trademarks

• 1. maximize product differentiation, advertising and marketing, thus enhancing recognition of your product or service

•

2. increase revenues as consumers pay higher prices for branded goods

• 3. derive loyalty largely due to consumer’s ability to recognize the product and distinguish it from the products of competitors

Copyright Law• What is copyrightable?

• Original Works of authorship fixed in a tangible medium of expression – 17 U.S.C.102(a)

• What is NOT copyrightable?• Ideas, facts (unless arranged in unique way), procedure,

process, system, method, concept, principle, discovery

• Examples of copyrightable Works• books• jewelry and sculptures• photos• performance art• website• software


Copyrights – Protection for Business

• Is the work protectable?• Original?• Expression of ideas, not the ideas themselves• non-functional

• Types• Textbooks, magazines, newspapers• Sculptures, jewelry designs• Photographs• Music, lyrics• Content on the Internet

Copyright - Limitations• First Sale Doctrine – allows purchaser to transfer

(sell, lend, or give away) a particular lawfully made copy of the copyrighted work without permission once it has been obtained (CD, book, etc).

• Fair Use Doctrine – allows for copying for purposes of criticism, comment, news, reporting, teaching, scholarship, or research.

• Purpose and character of the use• Nature of the work• Amount of the work used in relation to the whole• Effect of the use on the value of the work


Copyright – Exclusive Rights• Copyright is a bundle of exclusive rights:• 1. reproduce the subject work• 2. prepare derivative subject works• 3. distribute copies of the subject work• 4. perform the subject work publicly• 5. display the subject work publicly


Copyright – Benefits of Registration• Under current law, no registration is needed to preserve

copyright to an original work. Presumption of validity if registered within 5 years of first publication.

• Copyright Registration is prerequisite to filing suit in Federal Court, key to courthouse

• Timing of Copyright Registration• Pre-infringement (or within 3 months of publication) all

remedies available - statutory damages (up to 30k per infringement), attorneys fees

• Post-infringement: Not preferred, remedies such as actual damages of copyright owner and profits -hard to prove and likely less than statutory damages


Trade Secrets - Overview• What is a trade secret? – information not generally

known to the public, confers some economic benefit on its holder, and is the subject of reasonable efforts to maintain its secrecy.

• A trade secret is information that is valuable to the owner as a secret, and therefore must be protected as such. If the owner’s competitors generally know or could easily discover the secret information, the owner could lose his competitive edge.

Examples of Famous Trade Secrets

• Kentucky Fried Chicken – recipe • Twinkies - recipe• Coca-Cola – recipe• Krispy Kreme Doughnut - recipe• Listerine – formula• Big Mac Special Sauce - recipe• Mrs. Fields Chocolate Chip Cookies – recipe• NY Times Best-Seller List – methodology• WD-40 - formula


Trade Secret – formal definition

• Information, including a formula, pattern, compilation, program, device, method, technique, or process that:

• (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy (R.I. Gen. Laws sec. 6-41-1(ii)

• Note – a threshold is not required; the only requirement is secrecy of information that derives independent economic value from remaining secret


Trade Secret – examples

• Formulas• Processes• Devices• Customer Lists• Software (source code)• Pricing Information• Know-How• Negative Information• Compilations• Designs


Loss of Trade Secret Protection

• 1. Secret is disclosed publicly

• 2. Reverse engineering

• 3. Independent development or creation


KFC – Story of Trade Secret Protection

• Colonel Sanders kept the secret recipe in his head -- and the spices in his car -- although he eventually wrote it all down. His original, handwritten copy is hidden in a safe in Kentucky, and only a few select employees, bound by a confidentiality contract, know what the recipe is.

• For further protection, two separate companies each blend a portion of the mixture, which is then run through a computer processing system to standardize its blending [source: KFC.com].

• Employees-in-the-know can't ever travel together by plane or auto to further safeguard the secret, and that once, the recipe was temporarily moved to another secret, secure location via an armored car, which was further guarded by a high-security motorcade [source: DailyFinance].

Trade Secret v. Patent

• Patent• Invention disclosed in a non-provisional application

patent for all of the public to see is protected for 20 years from date of filing upon issuance of patent certificate (not a guarantee)

• Trade Secret• In contrast, invention maintained as a trade secret

which will remaining secret and a competitive advantage indefinitely so long as its not publicly disclosed


Patents – Pros and Cons• In general, patents are more easily enforceable.

• Defenses to trade secret misappropriation not available in patent context • independent invention• reverse engineering• public disclosure, sale or publication

ConFirst to File in March 2013 – “race to the patent office”


Trade Secret – Cause of Action

• Misappropriation – acquisition of a trade secret of another by a person (corporation) who knows or has reason to know that the trade secret was acquired by improper means (R.I. Gen. Laws sec. 6-41-1(2)

• Examples – theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, breach of duty of confidentiality (employees), or espionage through electronic or other means (R.I. Gen. Laws sec. 6-41-1(1)

Trade Secret – Potential Relief

Trade Secret Misappropriation

1.Injunction –actual or threatened

2.Damages – actual loss/unjust enrichment/reasonable royalty

3.Exemplary Damages – willful/malicious (double damages plus attorneys fees)

Factors Used By Courts to Determine Trade Secret Status

• 1. extent known external to business;• 2. extent known internal to business as a trade secret;• 3. reasonable measures taken to guard secrecy• 4. economic value of information• 5. cost of R&D• 6. ease of reverse engineering or independent creation


Statute of Limitations - Comparison

• R.I. Gen. Laws Sec. 6-41-6 – statute of limitations for brining action for misappropriation is (3) three years after discovery

• Patents – (6) six year statute of limitation after discovery of infringement


Benefits of Trade Secrets

• 1. trade secrets have no registration costs (trademarks $275, patents $533, copyrights $35)

• 2. trade secrets go into effect immediately (trademarks – 13 months, patents – 24 month min., copyright – 6-8 weeks)

• 3. trade secrets have no maintenance fees (trademarks, patents)

• 4. trade secrets have no specific compliance requirements – need to take reasonable measures

Maintain and Protect – Trade Secret

• Reasonable means to protect trade secret:• I. Contract Law – non-compete, non-

disclosure, licensing, employee, policies, work-for-hire, consultant etc.

• II. Control access – passwords, encryption, firewalls and network security, restricting physical access, record keeping, exit interviews, security guards, badges, etc.

• III. Notice –stamp/legend – “confidential”


Conclusion

• Identify• Identify property and determine whether it is important to

you and your company

• Research• Take early action to search inventions, clear trademarks

to avoid problems

• Protect• File for appropriate patents, registrations

• Enforce• Police property, pursue infringers

Maintaining Trade Secrets in Rhode Island

Documents

josephs holmes

trademark law use

types of patents

benefits of patents

subject work

business method patents

copyright law publication

trade secret law